The Financial Times reports that Wall Street executives are “enraged” about the compensation limitations of the new Obama administration’s new recovery plan. Numerous bankers warn that these pay caps will lead to a “brain drain” in the financial industry.

No, they’ll just do what they have always done–leave and start new banks, new funds, new money making ventures.

And yes, I know it’s fashionable to slam bankers these days, but make no mistake, for every guy who lost money and didn’t get bonus, there are others who made money, and should get get bonuses. Just like commissions for car salesmen, or real estate agents, most of these traders work on commissions. (Bonus is a rather bizarre misnomer.) They all have deals that are termed, “eat what you kill”. They may have a small base salary, but if they fuck up, they get not one dime more.

And in a recovery, you want them hungry. You want them to work their tails off in a crappy market to make money for their clients.

They are distinctly different from the Veeps at the top who rarely do much to bring in money, and they are different from the retail guys who just trade and trade and churn accounts and only make money on sales fees, but not on whether or not they make a profit for their clients. Those toads should be capped.

Trouble is, this legislation doesn’t differentiate. It just cuts them all off. Stupid, because they will all leave the firms that are failing and who got govt money, and then those firms WILL be unable to pay the money back, if all their stars have left, and they only have the crappy incompetents left.

Maybe the rank and file should get the “eat what you kill” bonus…. Maybe. (Would love one of those.)

Going to throw a couple of ideas out about the subject.

The first is that the bank/investment industry may be going through a rather violent and fundamental shift. Is there money out there to pay for large bonuses any more? Practically all of the big banks took loans from the government meaning there are quite a few that are in bad shape. Even if a bank’s star leaves on firm, they are unlikely to get a large bonus somewhere else because of the conditions of the market. Maybe they’ll never match the bonuses given out in the peak in 2007. (Interesting to note that even though they declined in 2008, they were still the 6th highest on record. Maybe as people note that the autoindustry is going to have to ask their employees for compromises, the banking industry will to.

If there’s a brain drain in the finacial markets — it would probably be better for society. Read an article which noted a significant percentage of college students were enrolled in business courses, lured by the faint promise of riches beyond most people’s imaginations. One study cites that students enrolled in banking and finance went from 4% to 23% from the 1960s to recent years. Do we really need this much brain power devote to banking and investment? I mean there are physicists creating formulas for Wall Street — I can’t be the only person who thinks this is an absolute waste of brain power .

There are some people with a real passion for business and investment. Don’t think they’ll leave the industry. As for everyone else… if they’re only in it for the money and are working 12-hour days in the hopes of ending up with an obscene amount of cash… maybe it would be better for themselves and for society if they did something else.

It’s been suggested, and I suspect quite rightly, that the incentive structure that encouraged short-term thinking and imprudent risk-taking was a not insignificant contributing factor to the economic mess we now find ourselves in.

The Investment Community has always been staffed by risk-taking, greed-motivated, sociopaths.

What CHANGED was that in the 1980’s the Reagan administration passed laws that allowed Retail Banks to get into the Investment World in a way they had never been before. Thereafter, the deposits of the people became subject to high risk of the Wall Street variety.

There is a banking crisis that has rocked the globe because the neo-liberals in the Republican party have conflated Investment Banks with Retail Banking.

Seriously, most average retail investors have no clue what they are doing and should not be investing in anything more complicated than a Canada Savings Bond, and twenty years ago, they wouldn’t have been. But as more companies stopped providing pensions, more people started using RRSPs, and tried mutual funds.

And we haven’t lost money in this market. We haven’t made any since last March, but we haven’t lost any. If my financial whiz guy husband doesn’t do anything risky or wild with retail mutual funds, what does that tell you?

And Sharon, those students who keep trying to get in to business, rarely get anywhere near managing money unless they really are any good. They end up in other areas, like selling mutual funds to auto workers. Sigh….personally I’d love to shoot those bastards for taking advantage of such vulnerable people. I’d also like to shoot the retail banks for extending such endless credit to these poor suckers, and the advertising industry for telling them they all deserved flat screen TVs on credit.

Look, most money managers don’t have a problem taking less commission, frankly, the market will go sideways for the next few years, so they won’t be getting much as a percentage. They were already going to be taking a hit. It’s just that in this case, they have lumped in the bad and the good. And that is unfair. The guys who knew how to make money the honest way never cheated and created this crappy toxic paper. The incompetents did. They couldn’t do it on their own, so they lied and sold it to Joe Six-Pack and Joe Six-Pack’s Bank.

I’m not saying they are all good, or should all get piles of money, but incentives work, whether you are discussing home sales or marketing, or what have you. Why not fire the fuckups, or send them to jail, and reward the ones who succeed?

Well, Kevron, my long comment seems to have been permanently eaten, but no, it isn’t good to think short term, and you can blame Joe Six-Pack and his retail mutual fund and RRSP addiction. They needed corporate profits to go up and up constantly, to make mutual funds climb, and so they did.

If Joe didn’t see his mutual fund dollars rise, then he sold, and then mutual fund companies freaked, and all hell broke loose.

Aurelia, the couch potato plan is the way to go if you’re going to invest.

As for mutual funds and RRSP, I sort of feel sorry for people because we’re given some truly crappy advice. It’s been ground into us that if we don’t start saving and get a certain level in interest that we’ll be eating cat food. Mutual funds are often pushed onto people as though they would give a fixed income (instead of something that should be sold as a hedge against inflation). If we don’t have X amound in interest per year, we’re made to feel as though we’re falling behind. It’s all pretty much crap.

And Sharon, those students who keep trying to get in to business, rarely get anywhere near managing money unless they really are any good. They end up in other areas, like selling mutual funds to auto workers.

It’s just creepy to know that close to 1/4 of all college students are trying to head into business/finance.